Statement of Robert E. Murray, President and Chief Executive
Officer,
Murray Energy Corporation, Pepper Pike, Ohio, on behalf of the National
Mining Association

Testimony Before the Subcommittee on Select Revenue Measures
of the House Committee on Ways and Means

Hearing on the Effect of Federal Tax Laws on the Production, Supply and
Conservation of Energy

June 13, 2001

Mr. Chairman, my name is Robert E. Murray. I am President and Chief
Executive Officer of the Murray Energy Corporation. It is a privilege to
appear here on behalf of the National Mining Association (NMA) to talk
about changes that can be made in the Federal tax laws to encourage the
more efficient use of coal to provide reliable and affordable electric
energy for America with reduced environmental impact.

Coal comprises over 90 percent of our domestic energy reserve. It is the
fuel for approximately 52 percent of the electricity that our citizens use
to run our businesses and support our everyday lives. Coal is electricity.
As stated in the President's May 17th report,(1)National Energy Policy: "If rising electricity demand is to
be met, then coal must play a significant part." Coal, is and must
continue to be, one of the cornerstones of our Nation's energy strategy.

Background

The Murray Energy Corporation is the largest independent, family held,
coal producer in the United States. The coal companies operating under
Murray Energy Corporation's ownership produced over 20 million tons of coal
in 2000 in five states: Ohio, Pennsylvania, Kentucky, Illinois and West
Virginia. We are expanding our operations in these states and in Utah, and
expect to be produce at least 30 million tons annually within the next
three years.

The National Mining Association represents the producers of over 80
percent of America's coal and all of the uranium mined and processed in the
United States. NMA also represents companies that produce metals and
non-metals - large industrial energy consumers - as well as manufacturers
of processing equipment and mining machinery and supplies, transporters,
and engineering, consulting and financial institutions serving the mining
industry.

Mr. Chairman my statement today will focus on three areas in which
we believe changes in the Federal tax laws could enhance energy production
and use: 1) the use of investment and production tax credits to accelerate
commercialization of clean coal technologies both in existing and new
electric power generating facilities; 2) the elimination of the alternative
minimum tax; and, 3) changes in the tax code needed to encourage domestic
uranium production and processing.

Accelerating the Use of Clean Coal Technologies for the Generation
of Electricity.

As so well described in the National Energy Plan that President Bush
released on May 17th the American economy in the 21st century will require
reliable, clean and affordable electricity to keep the engine running, the
lights on, and the computers humming. The Department of Energy forecasts
that, by the year 2020, U.S. electricity consumption will be over 40
percent higher than today. The current electric generating fleet is not
capable of meeting these new demands. As a result, a large number of new
base load electric generating plants will be required to meet expanded
electricity demand reliably, and at affordable prices.(2)

Today, more than one-half of U.S. electricity is generated from
abundant, low cost, domestic coal. Coal can play a greater role in meeting
future demands, as it constitutes more than 90 percent of United States'
fossil fuel resources, enough to last more than 250 years at current
consumption rates.

However, new coal based generating plants that would be capable of using
this great resource are not being built. To illustrate, over 43,000
megawatts (MW) of coal capacity came on line between 1980 and the end of
1984. In the past five years, only 3,500 MW of new coal capacity have been
brought on line. This is largely due to uncertainty about new environmental
requirements from the U.S. Environmental Protection Agency, coupled with
the risks associated with large investments as the utility industry becomes
more diverse and more competitive.

The development and commercialization of more efficient and lower
emitting clean coal technologies is required to meet new electricity
demands while continuing to improve the environment. In the short term the
challenges are two. The first challenge is to expand the use of newer, more
advanced NOx and SO2 control technologies in existing plants
through retrofits. While such investments are extremely costly,
technologies are available to do this while improving the efficiency of
fuel combustion and increasing output. The second challenge is to move new
advanced clean coal technologies that have been proven at the demonstration
stage to, and through, placement in the commercial marketplace.

Legislation the "National Electricity and Environmental Technology
Act" (NEET) has been developed to meet this dual challenge. It is
important to note that this legislation, which is pending in the Senate as
S. 60, and, we expect will shortly be introduced in the House, is strongly
supported by coal producers, coal based electric generators, and coal
hauling railroads, along with the NMA, the Edison Electric Institute, the
Association of American Railroads The National Rural Electric Cooperative
Association and the American Public Power Association.

The NEET legislation has three important programs:

A research and development program that addresses long-term clean
coal technology needs;

A limited demonstration program to provide tax incentives (a
combination of investment tax credits and efficiency production tax
credits) for initial commercial scale application of advanced coal
based generating technologies in both existing and new facilities.

Not only would implementing the NEET Act result in reduced environmental
impact and greater efficiencies in converting coal to electricity, it would
assure that our Nation has the affordable electricity we need for continued
economic growth. NEET will result in significant reductions in emissions.
NOx emissions would be reduced by 741,000 tons, SO2 emissions
would be reduced by over 2.5 million tons, and CO2 emissions
would be reduced by nearly 12 million tons. NEET is complementary to the
United States' climate change strategy outlined by President Bush on
Monday. NEET is a win for the economy, a win for the environment and for
the lower income Americans who pay a far higher percentage of their income
for electricity then others in society.

As the subject of this hearing is specifically on changes to Federal tax
code, we will limit our comments to the relevant portions of the NEET
proposal. Tax changes proposed are:

1) For existing coal-fired
generating units: NEET proposes to amend the Internal Revenue Code
to provide a 10 percent investment tax credit on the first $100 million
investment in a qualifying system of continuous emission control
retrofitted on an existing coal-based generating unit. If an existing
unit is repowered with a qualifying clean coal technology, NEET proposes
that units under 300MW be eligible for a $0.0034/Kwhr production tax
credit for the first 10 years of operation. All units must meet improved
efficiency targets to qualify for any tax credit.

2) For advanced clean coal
technologies installed on new generating plants: NEET proposes to
amend the Internal Revenue Code to provide a 10 percent tax credit and a
variable, efficiency based 10 year production tax credit for investments
in advanced clean coal technologies for use in new or repowered units.
Again, these technologies must meet increasingly improved design
efficiency standards. The "bar" to qualify for tax credits gets
higher in the out years of the program. NEET limits the amount of
capacity for each technology that would qualify for credits with the
understanding that, once a technology is proven commercially, tax credits
are not needed to make that technology competitive.

Tradable tax credits are available for electric cooperatives and
publicly owned utilities so they may also utilize the financial benefits of
NEET.

It is expected that the revenue impact of the NEET proposal would be
between $1.7 - $2.2 billion for the first five years and between $3.2 -
$4.5 billion for the second five years. Over a 24 year period, the total
revenue impact is projected to be from $8.3 - $11.2 billion.

Why are aforementioned incentives necessary? Uncertainty about new
environmental requirements and electricity deregulation, coupled with the
fact that only expensive retrofit technologies can achieve the more
stringent emissions limits being considered for existing coal based
generating facilities, have caused electric generators to delay investments
in new technologies. Additionally, initial commercial deployment of new
technologies entails significant technical and financial risk. These risks
can be offset in part, and needed investments can be encouraged, through
the tax-based incentives outlined above. Coal based generation must and
will continue to play an important role in meeting new energy demands and
it is important that coal generators use the most efficient and
environmentally sound technologies available.

The fact that incentives are needed to encourage the use of advanced
clean coal technologies is clearly seen by analyzing recently announced
additions to the coal based generating fleet. Since the first of this year,
companies have announced intentions to build nearly 34,000 MW of new coal
fired capacity.(3)

According to the referenced RDI study, 23,000 MW will be at new sites,
9,800 MW will be in the form of expansion at existing sites and 851 MW will
involve repowering at existing sites. A full 12,000 MW, or one-third of the
new capacity planned, will use existing PC technologies. Only 4,000 MW will
use the most advanced gasification technologies. Another 9,000 MW will use
fluidized bed, and the technologies at the remaining units are unknown.
This illustrates the reluctance of electric generators to take either the
financial or the technical risks associated with the most advanced clean
coal technologies and illustrates clearly the need for incentives to put
"first and second" of a kind technologies on line. The incentives
included in NEET will provide the impetus to increase the supply of
electricity, improve the environment through reductions of pollutants
regulated under the Clean Air Act, and reduce the amount of carbon dioxide
emitted per unit of energy produced through significant increases in the
efficiency of converting coal to electricity.

Tax Changes to Encourage Increases in Coal Production.

Tax policy can be a major component of energy policy as taxes affect the
development and production of energy, including electricity. Several
provisions of the Internal Revenue Code should be modified to address
counterproductive policies previously put into place. These issues are also
of significant importance to the oil and gas industry.

The corporate alternative
minimum tax (AMT) should be repealed or modified. Mining is a
capital-intensive business, and the AMT works a hardship on such
businesses. As measured by generally accepted accounting principles, most
mining companies are not profitable. In recent years, most companies have
been consistently unprofitable. The fact that mining companies are required
to pay the AMT, even if they have no profit, has added to the difficulty of
attracting capital to maintain, expand, or construct new mines. If
elimination of the AMT as provided in legislation introduced by Rep.
English and other members of the Committee, is not politically or fiscally
achievable in the near term, at a minimum, provisions similar to
legislation advanced by Rep. Hayworth and many other members of the
committee in the previous Congress should be supported to allow historical
corporate AMT taxpayers, such as mining, to utilize accumulated AMT tax
credits to offset prospective AMT tax liability. Legislation to effect such
a change was enacted by the previous Congress, but was vetoed as part of a
larger tax package by former President Clinton.

Further, mining companies should be provided the opportunity to fully
expense exploration and
development costs as does the oil and gas industry. The current
limitations on expensing result in mining companies being forced to
capitalize a percentage of their exploration and developments costs. This
tax treatment serves as a disincentive to the development of new mines to
meet our Nation's needs.

Modifications in the Tax Code to Assist Domestic Uranium
Producers.

The United States uranium recovery industry has long been recognized as
vital to United States energy independence and essential to National
security. The domestic uranium industry has been found to be "not
viable" by the Secretary of Energy under provisions of the Atomic
Energy Act of 1954, as amended. Transfers and sale of government uranium
inventories, including those related to the United States/Russian HEU
Agreement and the privatization of the United States Enrichment
Corporation, have had material adverse impacts on the United States uranium
industry to the extent that the current spot market price of uranium is at
an all time low. The unfettered introduction of government inventories has
caused domestic uranium producers to either cease or curtail production.

At such time as the price of natural uranium recovers to approach a
reasonable cost of production, the United States uranium industry can be
competitive with foreign producers due to advances in technology. Providing
assistance to the domestic uranium industry is essential to mitigate the
impacts on a private industry from government disarmament policies and
government transfers of excess uranium reserves. This will assure an
adequate long-term supply of domestic uranium for the Nation's nuclear
power program and will preclude any threat from foreign supply disruptions
or price controls.

The National Mining Association supports modification of the tax code to
allow domestic users of uranium products a credit for the purchase of
domestic uranium products. Suggested changes are appended to my statement.

Mr. Chairman, this concludes our statement. We will be pleased to answer
any questions either now or for the record.

1. "National Energy Policy,"
Report of the National Energy Policy Development Group.

The Energy Information Administration
forecasts show that nearly 400 GW of new and replacement capacity will be
required by 2020, the equivalent of 1,300 plants at 300 MW each. Some 378
MW of the needed capacity is still in the "unplanned" stage.

3. Source for this and all data in this
paragraph: "New Coal-Fired Generation, A summary of Developments
and Impacts to the US Coal Industry," Mark Morey, Principal Coal
Group, RDI Consulting, presentation to the Western Coal Council Spring
Pacific Forum, June 6, 2001.